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Applied problems

This topic has 1 expert reply and 0 member replies
pullagurla Senior | Next Rank: 100 Posts Default Avatar
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Applied problems

Post Thu Sep 02, 2010 10:35 pm
The total cost for Company X to produce a batch of
tools is $10,000 plus $3 per tool. Each tool sells for
$8. The gross profi t earned from producing and selling
these tools is the total income from sales minus the
total production cost. If a batch of 20,000 tools is
produced and sold, then Company X’s gross profi t per
tool is
(A) $3.00
(B) $3.75
(C) $4.50
(D) $5.00
(E) $5.50

Explain using picking number !

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GMAT/MBA Expert

Rahul@gurome GMAT Instructor
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Top Reply
Post Fri Sep 03, 2010 3:39 am
No need to pick numbers here. Can be done directly.

Cost to produce a batch of 20,000 tools = $10,000 + $3(20,000) = $70,000
Selling price for 20,000 tools = $8(20,000) = $160,000
Gross profit earned = $160,000 - $70,000 = $90,000
Therefore, gross profit per tool = $90,000/ 20,000 = $4.50

The correct answer is (C).

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